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SPREADSHEET ANALYSIS AND DESIGN Boaz Ronen Department of Information Systems Leonard N. Stem School of Business New York University 44 West 4th Street, Suite 9-170 New York, NY 10012-1126 Michael A. Palley Baruch College, CUNY School of Business and Public Administration 17 Lexington Avenue, Box 5 13 New York, NY 10010 Henry C. Lucas, Jr. Department of Information Systems Leonard N. Stem School of Business New York University 44 West 4th Street, Suite 9-67 New York, NY 10012-1126 June 1987 Working Paper Series STERN IS-87-52 Center for Digital Economy Research Stem School of Business IVorking Paper IS-87-52

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SPREADSHEET ANALYSIS AND DESIGN

Boaz Ronen Department of Information Systems Leonard N. Stem School of Business

New York University 44 West 4th Street, Suite 9-1 70 New York, NY 100 12- 1 126

Michael A. Palley Baruch College, CUNY

School of Business and Public Administration 17 Lexington Avenue, Box 5 13

New York, NY 100 10

Henry C. Lucas, Jr. Department of Information Systems Leonard N. Stem School of Business

New York University 44 West 4th Street, Suite 9-67 New York, NY 100 12- 1 126

June 1987

Working Paper Series STERN IS-87-52

Center for Digital Economy Research Stem School of Business IVorking Paper IS-87-52

SPREADSHEET ANALYSIS AND DESIGN

Boaz Ronen* Michael A. Palley** Henry C. Lucas, Jr.*

ABSTRACT

Spreadsheet programs and microcomputers have revolutionized information processing in organizations. Users have adopted spreadsheets to solve problems and circumvent the long delays encountered in dealing with the traditional information services department. A significant number of serious errors have been reported through the misuse of spreadsheet technology. This paper discusses several different contexts for the development of spreadsheet models and presents structured design techniques for these models. The recommended approach to spreadsheet analysis and design encourages the use of a block structure format for the worksheet and introduces Spreadsheet Flow Diagrams as a systems design tool. The objective of this design approach is to reduce the probability and severity of spreadsheet errors, improve auditability and promote greater longevity for spreadsheet models.

* Graduate School of Business Administration, 100 Trinity Place, New York, N.Y. 10006

** Baruch College, CUNY, School of Business and Public Administration, 17 Lexington Avenue, Box 513, New York, N.Y. 10010

Center for Digital Economy Research Stem School of Business IVorking Paper IS-87-52

INTRODUCTION

Spreadsheet programs have become extremely popular with

microcomputer users. Spreadsheets are utilized heavily by

end users and systems professionals alike. In fact

spreadsheet software has contributed a great deal to the

popularity of personal computers. These packages present

the user with a general purpose problem solving tool.

A spreadsheet can be viewed as a large matrix in which

columns are typically designated by letters and rows by

numbers. The intersection of a row and column defines a

cell; a cell can contain a number, label or formula which

relates it to other cells in the spreadsheet. The ability

to relate cells with formulae is what provides spreadsheets

with their tremendous power. If the spreadsheet model is

constructed with formulae, a change in one or two numbers is

immediately reflected throughout the spreadsheet.

As an example, consider Figure 1 which is the printout

of a simple spreadsheet model. Figure 1 is a salary

calculation model; the decisionmaker enters an increase

amount, and the percentage of the 1987 wage the increase

represents is calculated in the third column. Total

increases and the percentage of total 1987 compensation they

represent are computed in the Totals row.

Suppose that the decisionmaker is told that wage

increases in his department can average 8% for 1987. This

model allows him to enter different increases for

individuals, observe the individual's percentage increase

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and at the same time view the impact of all increases on the

"bottom linen represented by the totals. In this instance,

the decisionmaker has stopped having reached a departmental

aggregate wage increase of 8.03%

Once this model has been constructed, the only input

needed by the decision maker is to enter dollar amounts in

the column labeled @lIn~rease.~ The alternative to a

spreadsheet model is pencil, paper and calculator; each time

a new salary increase is entered, the totals must be

manually recomputed. One of the authors used to use a

calculator for this process and developed the model in

Figure 1 as his first spreadsheet application. He reports

that the time to figure raises fell by a factor of at least

five using the model.

Spreadsheets offer a tremendous amount of analytical

power. Most users of spreadsheets develop the models

themselves. Another attraction of both microcomputers as

well as this type of software is that the user is no longer

dependent on the information services staff. Especially for

quick, infrequently used applications such as the one in

Figure 1, it would take far too long to create an

application on a mainframe or mini through the information

services department.

Overview

This paper recommends a structured approach to the

design of spreadsheet models. Topics covered include the

differences between spreadsheets and traditional information

Center for Digital Economy Research Stem School of Business IVorking Paper IS-87-52

processing applications. The paper then suggests that

different types of design contexts influence the degree of

structure appropriate in spreadsheet design. The life cycle

of a spreadsheet is presented along with a block structure

format for these models. The paper introduces spreadsheet

flow diagrams (SFDs) as one approach to designing these

models. The paper concludes with suggestions for menu

designs for spreadsheets.

DESIGN METHODOLOGY

The Problem

Spreadsheet packages and micros have extended computing

to vast numbers of individuals. For many users, the

spreadsheet program represents the first "hands onv

experience with a computing device, programming and

documentation. In general, these users have not been trained

to undertake systems analysis and tend to overlook the

concerns of the professional systems analyst in designing a

system, such as reliability, auditability and control. In

fact, the spreadsheet user is often happy to avoid systems

professionals.

Unfortunately, user independence comes at a potentially

high cost. The practitioner literature has discussed a

number of problems with spreadsheet construction (Bryan,

1986 and Grushcow, 1985). Examples of frequently cited

errors are mistakes in logic, incorrect ranges in formulae,

incorrect cell references, confused range names, incorrectly

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copied formulae, incorrect use of formats and column widths,

accidentally overwritten formulae and misuse of built-in

functions. Table 1 describes some of the problems found

with spreadsheets.

Desisn Obi ectives

To minimize the probability and severity of the

problems in Table 1, the designer of a spreadsheet should be

concerned with the following issues: 1) A spreadsheet

should produce reliable results; the output it generates

should be correct and consistent. 2) A spreadsheet should

be capable of being audited; the user should be able to

retrace the steps followed to generate different outputs

from the model to understand the model and to verify

findings. 3) A spreadsheet should be capable of being

modified easily without introducing errors.

A final issue impacts the three listed above:

comprehensibility. The designer and user should be able to

easily understand the model and its assumptions as

represented in the spreadsheet.

Spreadsheets and Traditional IS

Spreadsheets are a type of information system, though

they are most often not developed by information systems

professionals. The IS professional is (or should be)

concerned with the issues described above in designing any

information system. One reason for lengthy development

times for multiuser systems designed by professionals is

Center for Digital Economy Research Stem School of Business IVorking Paper IS-87-52

concerns about data integrity, input editing and error

checking.

Since the spreadsheet developer is often a user who is

basically unfamiliar with the design principles above, ad

hoc design is common. There tends to be little concern with

formal analysis or documentation, Often the spreadsheet

model is a one-time exercise or an infrequently used

decision support system (DSS). Formal design methods slow

progress on ttquicktt systems.

A structured approach to spreadsheet design can help

reduce the probability and severity of problems with

spreadsheets. To be useful, a spreadsheet design approach

must help achieve the objectives for these models described

above, must achieve results quickly, and must be suited to

the style of the end user. Table 2 describes the

characteristics of spreadsheet applications and the

implications of these characteristics for design.

Because of the wide variety of use for spreadsheet

models, it is very difficult to construct a design

methodology that will be generally applicable. This paper

proposes a structured approach to design the use of which is

contingent on the type of model being developed.

SPREADSHEET ANALYSIS AND DESIGN

Types of Applications

Spreadsheets are distinguished by the variety of

applications for which they have been used. The most

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frequent use of spreadsheets is for decision support and

personal productivity, but there have also been many

spreadsheet applications which could be considered

mainstream information systems applications. For example, a

firm might do all of its financial statement consolidation

for its subsidiaries using a spreadsheet package. Before

this software was available, the firm might have written

COBOL programs or purchased a dedicated package to produce

financial statements.

Figure 2 depicts the design context for spreadsheets.

If the spreadsheet is to be used for a traditional

transactions processing or information processing task, then

one could argue that it should be designed using normal

information services methodologies like structured design,

data flow diagrams, etc. ; (see Lucas, 1985) . However, it is

unlikely that such formal design will be used. The

techniques presented below are an alternative to completely

informal, ad hoc design for systems professionals as well as

end users.

In the DSS environment, it is important to consider

whether or not the developer is also the user. If the user

develops his or her own model for a one shot decision, then

informal design procedures are probably satisfactory. It is

also unlikely that anyone can convince the user in these

circumstances to adopt any other approach! If the one-shot

decision is crucial to the organization, it might be useful

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to at least have someone other than the designer audit the

model.

If a user is developing his or her own application and

plans to use it frequently, then the analysis approach

suggested later in this paper should be considered.

When the developer is not the primary user, then it is

recommended that a formal design methodology be employed.

Even if the system is to be used for a one-shot decision,

the fact that the spreadsheet is being designed for someone

else suggests that the decision is either very important or

the model is complex; either condition warrants the use of a

formal approach to design.

Appplications that will be used frequently by many

users are candidates for formal design, macros and menus.

If users are experienced and understand the package, macros

and menus may be an extra option. However, if users are

inexperienced, menus and macros are needed to help the user

execute the model and to protect the spreadsheet.

The Spreadsheet Development Life Cvcle

Texts on systems analysis and design usually include a

systems development life cycle. (See Lucas,1985.) It is

possible to develop a similar life cycle for spreadsheet

applications, though the life cycle must be flexible to

reflect the different contexts for spreadsheet design

described above. (See Figure 3.)

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1. Problem Identification

The designer defines the nature of the problem to be

solved. How is the problem currently solved if at all?

What are the performance bottlenecks? This stage is similar

to the "existing systems studyfg of the systems development

life cycle. How will a spreadsheet model help solve the

problem? What are the sources of information?

a. Cost benefit analysis.

What is a reasonable time frame for model development?

What kind of application is this, e.g. is it a one-shot

decision model or a model that will be used many times?

What resources should be put into development?

b. "Make or buytt analysis.

The designer should conduct research to determine if an

existing template can be purchased for this

application. There are a number of such templates for

income tax calculations, rental analysis, real estate

investments, etc.

2. Definition of model outcome/decision variables.

The spreadsheet is usually developed to produce some

type of results like a net present value for an investment,

a yearly estimate of profits, the deviation of actual from

budgeted expenses, or a set of financial statements. The

outcome variable needs to be defined. The designer may have

variable which represents a decision such as the dollar

raises granted to each employee in Figure 1.

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a. Define how the outcome is generated.

This part of the model represents the calculations

which are undertaken in the model.

b. Define the block structure of the model.

A recommended model structure is presented later in

this paper.

c. Define menus/macros (optional)

If the model will have menus and macros, the designer

should describe their function at this point.

3. Construct the model

This stage corresponds to the traditional notion of

programming. Using the various commands of the spreadsheet

language, build the model. When the model is large, use a

top down approach in which building blocks are constructed

and then filled in with details.

a. Build macros and menus (optional)

Depending on the type of applications, the developer

may want to include menus and macros.

4. Test

Carefully test the results of the model. Print a hard

copy of the model and the cell formulae. Check all

calculations independently from the spreradsheet. Test both

historical and extreme input data. Examine the spreadsheet

to see if there is an audit trail; can someone follow

through the assumptions to determine how a cell's value was

determined, or is too much hidden in formulae? Look for

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formatting errors which might result in the unintentional

rounding of percentages or multipliers.

5. Documentation

Document the spreadsheet on the spreadsheet, itself,

That is, include text on the spreadsheet that explains the

model as shown later in the paper.

6. Audit

Review the model and its structure. Consider the use

of audit packages to trace through formulae.

7 . Prepare a user manual (optional)

For systems designed for others to use, a manual is a

necessity. For applications created by the user, a manual

is valuable if the application is to be used more than once.

8. Training (optional)

If the model is to be used by others, they need to be

trained prior to installation.

9. Installation.

Prepare the spreadsheet for use, for example, by

installing it on a users computer so that the model loads

whenever the spreadsheet program is started.

The next section of this paper suggests a block

structured format for a spreadsheet model. Then the paper

introduces the concept of Spreadsheet Flow Diagrams as a

structured design aid. Finally, the paper concludes with a

discussion of how to design menus for spreadsheets.

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Model Format

Figure 4 presents a recommended structure for a

spreadsheet. similar designs have been proposed in Grupe

(1985) and Berry (1985). The purpose of the structure is to

separate parts of a spreadsheet into blocks to reduce the

potential for errors. A well structured spreadsheet also

clarifies the assumptions of the model to users.

Figure 4 contains a number of blocks which taken

together comprise the spreadsheet model. The identification

block presents the name of the developer, user and the name

of the model. It also contains a list of revision dates.

To the right of the identification block one finds the

macros/menus block. Macros and menus must be isolated from

parameters and formulae because the insertion or deletion of

a row in a model could delete a line or insert a blank line

in a macro causing quite anomalous behavior when the macro

is executed.

Immediately below the identification block is a map or

index to the spreadsheet. It contains a description of

where the various blocks may be found and acts like a table

of contents for the model.

The large documentation block allows the spreadsheet

developer to describe in general terms how the model works

and to annotate various rows in the model, itself.

The parameter block contains variables which are used

in the formulae. For example, one would place interest

rates, assumptions about sales growth rates, and so on in

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the parameter block. A good rule to follow is that no

formula should contain a number; there should only be

references to parameters or cells in the worksheet. If this

rule is followed, there is little danger of

misinterpretation because a crucial parameter is hidden in a

formula. Looking over multiple runs of the model, the user

will be able to see what assumptions pertain to each run,

for example, it will be clear what interest rate was used on

each model run by examining the parameter block for the

interest rate parameter.

The final block in the spreadsheet is the model,

itself. The spreadsheet packages with their row and column

references suggest a view of the model as a matrix. Certain

columns or rows of the matrix (possibly a single cell) might

be interpreted as input or output vectors.

Spreadsheet Flow Diaqrams

The notion of Data Flow Diagrams (DFD) has proven

popular in traditional systems analysis and design as a way

to encourage structured, top down design and to reduce

complexity (Gane and Sarson, 1979, DeMarco, 1979). This

paper proposes the use of Spreadsheet Flow Diagrams (SFD)

for the analogous purpose with spreadsheets. For many

spreadsheets there will be no need to follow a top down

approach because the model will be simple. However, for

large spreadsheets, the notation allows and encourages the

use of top down design approaches.

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Why not just use existing DFD notation? DFDs were

designed for transactions processing systems; they are

excellent for showing sources, flows and processing of data.

The spreadsheet is less concerned with the flow of data than

it is with modeling relationships. Even a low level DFD

might only indicate lfPost Receivablesw to denote a process

that most designers and users would understand. Spreadsheet

analysis and design needs a notation that shows the

"alg~rithrn*~ or the underlying formulae of the model.

Figure 5 shows the basic symbols of SFDs. A simple

rectangle is used to represent input vectors, output

vectors, decision vectors and parameters. (Any of these

vectors can be a scalar if it contains only one value.) The

type of vector is designated by a 45O line on one corner of

the rectangle as shown in Figure 5. A rounded rectangle

represents the formulae in the model.

It should be noted that the input, decision and outcome

vectors are subsets of the model matrix in most instances.

Some examples will show these unique characteristics of

spreadsheet models and will also demonstrate how the SFDs

can be used in design and documentation.

In Figure 1, the input, decision and outcome vectors

are highlighted. They constitute three of the four columns

in the matrix that is the model. An SFD for the salary

increase model in Figure 1 may be found in Figure 6a. The

SFD shows clearly that the increase is the decision variable

and that the outcome is to be a salary figure for 1988.

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While this decision vector may seems obvious, approximately

50% of students assigned this problem end up using the

percentages as the decision vector and awarding raises like

$2432!

Figure 7 presents a typical spreadsheet application for

predicting sales of a new product and Figure 6b is a high

level SFD for the model. The input vector has a subscript

*Itw to show that the model is predicting values over a time

period. Because it is easier to understand, the model

diagram shows profits as being sales less expenses. The

model box (labeled 1) in Figure 6b is exploded into a lower

level of detail in Figure 6c.

Figure 8 contains the final example, a grading program;

the corresponding SFD may be found in Figure 6d. Here there

are m students with n grades. The model weights the grades

to provide a final average and grade for each student. The

instructor also is interested in the mean, variance and

standard deviation of the scores on each assignment. The

subscripts m and n used in the SFD clarify the requirements

of the model.

The advantage of using a structured notation for

spreadsheets is the same as the advantage of using a

notation like Data Flow Diagrams for traditional systems

analysis and design. SFDs help the designer structure the

design of the problem. They assist in communicating the

structure of a model to others and they serve as

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documentation when it is necessary to audit or modify the

spreadsheet.

Menu Desisn

Many popular spreadsheet packages allow the model

developer to define macros (programs consisting of

keystrokes) and menus. Figure 9 is an example of a state-

transition diagram for a menu for the grading program in

Figure 8. Each keystroke selection from the main menu moves

the user to a state represented by one of the circles. In

Figure 9, the menu appears as the spreadsheet is loaded.

The user sees a menu which contains the following commands:

Add, Delete, Modify, Print, Save and Quit. Typing the

letter A results in the execution of a spreadsheet macro to

add a student to the roster.

If there were submenus reached from this first level,

they could be shown in a similar fashion. For example,

suppose that modify allows the user to choose what is to be

modified, a name or a grade. Entering N results in

positioning the cursor in the name column while a grade

change places the cursor at the first assignment from which

the user can move it to any assignment for any student. The

designer has made a decision to return to the modify menu at

the completion of a change in anticipation of another

change. Alternatively the designer could choose to return

to the main menu.

Another alternative to state-transition diagrams is the

menu trees often printed for menu-driven packages. These

Center for Digital Economy Research Stem School of Business IVorking Paper IS-87-52

menu trees look like organization charts and communicate the

same information as found in Figure 9. However, they are

less clear about the return point from each command issued

than the state-transition diagram.

SUMMARY

This article has argued for greater structure and care

in the design of spreadsheet information systems. The paper

first explored some of the problems with spreadsheet design

and the differences between the design of traditional

information processing applications and spreadsheet models.

The major contribution of this research are the

following:

1. Guidelines for differing levels of formal design and

the appropriate use of menus and macros in spreadsheet

design.

2. A suggested systems development life cycle for

spreadsheets.

3. A block-structured format for spreadsheet models.

4. Spreadsheet Flow Diagrams.

5 . Menu and macro design aids.

Spreadsheet packages have made a major contribution to

analysis and problem solving. The importance of the

decisions entrusted to spreadsheet modeling and the

pervasive use of these packages suggests that end users and

developers of these models need to be concerned with good

practice in spreadsheet analysis and design.

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REFERENCES

Ahituv, N. and Neumann, S. (1985). Information Systems for Manasement, Dubuque, Iowa: Wm. C. Browne, Second Edition.

Ariav, G. and Ginsberg, M. (1985). "DSS design, a systematic view of decision support88, Communications of the ACM, 28, 10, pp. 1045-1052.

(1986). "Methodology for DSS analysis and design: a contingency approach to their appli~ation~~, Proceedinss of the International Conference on Information Systems.

Berry, T. (1986). "How to structure spreadsheet^^^, Business Software, October, 1986, pp. 56-58.

Bryan, M. (1986). "Are your spreadsheets lying to you?88, Business Software, October, 1986, pp. 59-64.

Demarco, T. (1979). Structured Analvsis and System S~ecification. Englewood Cliffs, Prentice Hall.

Gane, C, and T. Sarson. (1979). Structured Systems Analysis. Englewood Cliffs, Prentice Hall.

Grupe, F. (1985). "Tips for better worksheet documentation^, Lotus, August, 1985, pp. 68-70.

Grushcow, J. (1985). "Avoid these common spreadsheet errors88, Lotus, July, 1985, pp. 59-62.

LeBlond, G. and D.Cobb (1986). Using 1-2-3. Indianapolis, IN: Que Corporation, Second Edition.

Lucas, H.C., Jr. (1985). The Analysis, Desisn, and Imwlementation of Information Systems, 3rd. ed., New York: McGraw -Hill.

McGrath, 3. (1986). I8PC8s can't add - but you can teach them tovt, Business Software, September, 1986, pp. 58-59.

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Problem Description

Reliability The degree that the spreadsheet gener- ated output is correct-impact on degree of confidence user places in the model

Auditability The ability to retrace the steps follow- ed in the generation of spreadsheet results

Modifiability The ability to change or enhance the spreadsheet to meet dynamic user requirements

Problems Associated with the Lack of a Design Methodology

Table 1

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Attribute Spreadsheets Implications

Users Non professional users often are designers of spreadsheets

Development Relatively Short

Modifiability Easy

Life cycle Short

Context Variety of situations

User does not realize problems with ad hoc approaches Assumes no need for a methodology

Attitude of no need or no time for a formal approach

May convince user to disregard formal analysis

Formal techniques seen as useless

Difficult to build a methodology suitable to all contexts

Characteristics of Spreadsheet Analysis and Design

Table 2

Center for Digital Economy Research Stem School of Business IVorking Paper IS-87-52

$::$::$:g:t:SALARY ANALYS 1 S:t:$::$:%:$ I d e t i t i f ica t i l s l t i ...................... Owner : J~=thti J o h t i s ~ ~ t i Devel s p e r : P e t e r Gr eeti U s e r : B e t t y La r scgti D a t e : J a n 30, 1 9 8 7 R e v i s e d : Feb. 1 2 1987 ...................................................................... ....................................................................... Map I=I f Mudel --.----- --.-- ---- ------- I d e t i t i f i c a t i o n Map P a r arfiet er 5 and a s sumpt i c~ t i s M~z~del

...................................................................... ...................................................................... P a r ariiet er si and Assumpt i ut is

1. C u r r e n t sa la r ies ( I n p u t V e c t c ~ r l are g i v e n i n column B. I: 2. S a l a r y i t i c r e a s e Ccc~lurnti 1::) is t h e D e c i s i ~ ~ t i & t h e F'ararlseter V e c t o r . 0 3. The rec~s~mmetided s a l a r y (cml urnti ES p r e s e n t s t h e O u t p u t V e c t o r . 0

N a m e C u r r e n t I n c r e a s e P e r c etit Recomrftetid 1987 1988

--.---- ------.--------- ----------- Jar te Dcte 6. G 7 % Mary Rc~e 8. 00% Sartt Srs~i t h 5.45% F'et er Jcsties 7.86% H a r o l d Whi t e 6 .15% S t e v e B lack 10. 0(2% Marvin G a r d e n s 7.78% B e t t y E~tclp 12.86% ---.------------------ ----------- Tota l s 8.03%

S a l a r y C o m p u t a t i o n Model Figure 1

Center for Digital Economy Research Stem School of Business IVorking Paper IS-87-52

The Speadsheet Development Life Cycle

Figure 3

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I . Prob lem I d e n t i f i c a t i o n 2. D e f i n i t i o n o f model outcorne/decis ion

A A I

var iab les

V

3. Const ruc t the Model

J

Er ro rs v

A 4. T e s t t h e Spreadsheet &

W

5. Documenta t ion

v

Er ro rs 6. Aud i t t he Spreadsheet Models and S t r u c t u r e

................................................................................... 1' j 7. Prepare a User Manual i

................................................................................... *:

; 1 : ...................................... ; 8. T ra i n i ng i .........................................

Identification Owner Developer

Macros

Menus User I Date Rev i sed

Map of model

Parameters (Assumptions)

Model Formulae/Matrix Input Vector(s) Decision Vector s) c. Parameter Vecto (s) Output Vector(s)

Recommended Spreadsheet Structure

Figure 4

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- 1 Input Vector

1 I output Vector

Decision Vector

i i

Parameter Vector

i Formulae (Model)

Data Flow

Spreadsheet Flow Diagram Symbols

Figure 5

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Increase

SFD Problem 1

Figure 6 a

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SFD Problem 2 Figure 6b

/ Price 1 Promot io \

Level 2 SFD for Problem 2 Figure 6 c

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-. -I___ _-- _-_-

Final, h, ? I

S F D P r o b l e m 3

F i g u r e 6d

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Figure 7

ALL PURPOSE WORKSTATION SOFTWARE CO. $$$New Product Project ionstStS

Identification --------------- Owner: All Purpose Workstation Software Co. Developer: Anne Smith User: Jerry Brown Date: 211187 Revised: 411187 ........................................................................... ........................................................................... Hap of Hodel --------------- Identification Hap of Hodel Paraaeters and assuapt ions Variables Hodel ........................................................................... ........................................................................... Assumpt ions --------------- 1. Sales ( in uni ts) for 1988 is the Input Vector. 2. The Output Vector is the Net Profit and Net Present Value, 3, The Hodel Parameters a re presented in the Paralseters Box 4, Sales Growth i s considered the same in each year. 5. The interest ra te (cost of capi tal) is fixed during a l l the period 6. Variable costs are proportionally linear t o the nurber of uni ts sold, 7. Tax r a t e is f l a t for a l l profi ts . ........................................................................... ........................................................................... SS?PararetersSSf --------------- Sales Growth Interest Price Variable costs Tax r a t e Assets deprec ------------------. ------------------- The Hodel -------..-------

---------------- Sales (uni ts) Revenue Variable cost Fixed cost Prolsot ion

$$$New Product Project ions%%?$ ..............................

1988 1989 1990 ----- ............................ 1 5,000 ir 7,250 10,513 $1,750,000 $2,537,500 $3,679,375 $375,000 $543,750 $798,438 $900,000 $900,000 $900,000

$1,000,000 $1,000,000 ~1,000,000

6105s Profi t ($525,000) $93,750 $990,938 Depreciation $25,000 $25,000 $25,000 Taxes $0 $24,063 $338,078

Het Profi t 8 $627,84 v1---

Center for Digital Economy Research Stem School of Business IVorking Paper IS-87-52

Figure 8

SSttSStudent Grading ProgramSSSSS Identification --------------- Owner: Jo L i t t l e Developer: Harry Brown User: Dr. Doli t t le Date: 213187 Revised: 3/3/87 ........................................................................ ........................................................................ Hap of the Spreadsheet ........................... Identification :Hacros Hap I I

Assump t i ons Par ameter s Hodel ........................................................................ ........................................................................ Assumpt ians and Parameters

1. Each assignment is weight a s per Table 1. 2. 6rades are assigned per Table 2. To use the Hodel: Alt H s t a r t s the macro execution and is the nare of XH BEGIN is the f i r s t student nare START is a range name for the menu GRADE i s a range name for the grading table

TABLE 1: HEIGHTS TABLE 2: GRADES --------------- ------------ Assiqnrent 1 -1 F Assignment 2 p elo ow 0.01 D Assignment 3 1 s td below 2.20 C

Hean 2.90 B 1 s td above 3.60 A

4.00 A ........................................................................ ........................................................................ The Hodel *--------------

SSSStStudent Grading ProgramtSStS Name Assign 1 Assign 2 Assign 3 Course Final

........................................................................

Boop, Betty Caroline, Princ

x Carson, Kit Doe, John Dupris, Jean Field, Harshall Jones, Betty HcDonald, Ronal Neuman, A1 fred Pan, Peter Roe, Hary

0 Rogers, Roy S ~ i t h , Sam Square, Harold VanPel t , Lucy ........................................................................ Hean Variance Standard Deviat

Center for Digital Economy Research Stem School of Business IVorking Paper IS-87-52

4 q u i t ) f- s a v e ) i i

State-Transition Diagram f o r M e n u D e s i g n

F i g u r e 9

Center for Digital Economy Research Stem School of Business IVorking Paper IS-87-52